Mercer predicts top Human Capital trends for 2010

Mercer predicts top Human Capital trends for 2010

21st January 2010

Mercer has identified the top five human capital issues for organisations to focus on in 2010:

1.      Foster growth in a new workforce context

2.      Be smarter with benefits as pay packets matter again

3.      Restore equilibrium in executive remuneration

4.      Mitigate turnover risk and restore employee engagement

5.      Develop well-rounded leaders who can maintain momentum and/or pick up the pieces

Sharon Spence, head of Mercer’s Human Capital business in New Zealand, says “2010 will be driven by a new employment cycle: organisations will be looking for ways to successfully rebuild and revitalise their workforces. However, getting it right will require consideration of the factors that have impacted New Zealand workforces during the GFC and its aftermath.”

Mrs Spence says in 2010 organisations will be required to:

#1. Foster growth in a new workforce context

As the economy continues to gradually recover in 2010, the demand for skills will return, potentially with more severity for some industries, with unemployment forecasts expected to peak at 7.0 per cent[1] which is lower than previously forecast, before dropping back into the 6 per cent range.. 

Success in 2010 will be defined by organisations’ ability to ‘shrink and grow’ – maintaining a focus on costs while growing talent, workforce productivity and the bottom line.  To achieve this, HR will have to become more targeted with budgetary spend in terms of where they recruit and retain their workforce. Targeting critical talent and developing the capabilities that are critical to the organisation’s success will become increasingly important.

Organisations should be rethinking traditional structures and processes and reassessing their capability requirements to ensure they can do more with less – in a sustainable way.

#2. Be smarter with benefits as pay packets matter again

With the purse strings still knotted around pay review budgets, even as we move into the economic recovery ,the talent shortage will nevertheless become evident once again as opportunities begin to surface.  Organisations will need to be smarter in how they allocate benefits and rewards to various segments within the workforce.

Mercer’s Market Survey conducted in July 2009 found pay rises will soon be harder to come by in New Zealand with pay budgets expected to shrink further in the 12 months to June 2010.

It revealed that over the previous 12 months national salaries for same incumbents (those who had remained in the same job in the past year), remained largely unabated rising by 5.2 per cent, a slight dip from 5.4 per cent the year prior. By contrast, across the board salary growth is expected to fall to around two per cent over the next 12 months.

In the current economic environment even if organisations are well into recovery they will need to focus more broadly on ways of incentivising employees without cash, by considering rewards holistically to include career development, training and other intrinsic work factors.

This could entail options such as:

·        Detailed career paths that identify upward and lateral development;

·        Employee communication campaigns;

·        Special project or taskforce opportunities, and;

·        Improved performance management programs

·        Greater flexibility options to manage work and life commitments

#3. Restore equilibrium in executive remuneration Executive remuneration remains an extremely sensitive issue emphasised by the GFC fallout and public response. Whilst remuneration for publicly listed companies in New Zealand has not hit the headlines to same extent as our Australian neighbours and beyond, we believe that NZ Boards will regardless face greater public accountability for executive remuneration decisions.

The extreme volatility of 2009 has exposed executive remuneration programs around the globe. For example tremendous value has been created and lost very quickly through equity incentives, calling into question the link between executive reward and company performance.

Even though the executive packages in New Zealand companies do not tend to be as complex as those in Australia and beyond in terms of short and long term incentives, organisations reviewing executive pay programs will be taking the opportunity to look for ways of balancing shareholders’ interests with the need to attract and retain top executive talent.  As we look to the future of executive remuneration there are four key trends set to emerge:

A renewed call for balance in executive compensation delivery – including a balanced focus on retention and reward, a more holistic approach to performance metric selection and target setting, and even-handed use of short- and long-term compensation elements.
 
Organisations will rethink the relationship between risk and reward and, in particular, look for ways to ensure that rewards reflect sustainable performance results so that excessive risk-taking is not encouraged.
 
As reward resources continue to be scarce, differentiation of key contributors through rewards and career opportunities will be even more critical.
 
Organisations will look for ways to apply the concept of segmentation to remuneration actions and maximise the return on limited reward dollars.
 
#4. Mitigate turnover risk by restoring employee engagement

The shortage of highly skilled people is far from over and an increasing demand for top talent will hit much quicker than people realise. Re-engaging demoralised employees who remain in the organisation will be critical for restoring faith - before ‘better opportunities’ surface.

For employers, open communication and strong leadership will be more important than ever as business picks up and employees review their options. With morale lower and employee uncertainty about the future potentially high, the need to focus on lifting employee engagement will be great. Managing the ‘change journey’, or the organisation’s changed environment, will be critical to success.

There is no ‘one size fits all’ change framework, however, in developing the capability to manage change, organisations will be required to:

Cement a view of where the organisation is and where it needs to be.
Pay attention to both the ‘organisation journey’ and the ‘employee journey’ - not just ‘what’s in it for the business’ but also ‘what’s in it for employees?’.
Use change levers to effect ‘people’ change alongside ‘business/technical’ change. For example, training, incentives, role design and leadership programs.
 #5. Develop well-rounded leaders who can maintain momentum and/or pick up the pieces

2010 will continue to require leaders with the ability to drive the organisation through tough times while restoring confidence among employees. This expectation of our leaders requires skills that their predecessors did not possess and organisations must help existing and future leaders develop, potentially on an accelerated path.

According to Mercer’s most recent Market Issues Survey organisations are already showing signs of placing a high priority on leadership development and are increasing their focus on investing for future growth.

The survey found while organisations are reducing spend, they are also prioritising areas for human capital investment, with 42 per cent now increasing human capital spend on building future capability through  leadership development and assessment for instance. In contrast, they are reducing spend in other human capital areas to help fund this shift, such as in short term incentives and base salary increases.

The top five areas in which organisations indicated they planned to increase human capital spend over the next 12 months, are:

Leadership development and assessment
Talent management and succession planning
Learning and development
Performance management processes and
Workforce planning and analytics
 
The first four of these investment areas have a direct impact on the development of leadership capability and will support any workforce strategy that looks to a future of renewed profit and sustainable growth.

-        Ends -

© Scoop Media